Free to Choose Book Summary - Free to Choose Book explained in key points

Free to Choose summary

Name: Free to Choose
Rating: 4.2 (87 reviews)
Author: Milton Friedman

Milton Friedman

The Classic Inquiry Into the Relationship Between Freedom and Economics

4.2 (87 ratings)

15 mins

Topics

US Economics

Table of Contents

Free to Choose
Summary of 10 key ideas

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Key idea 1 of 10

The power of the market lies in voluntary actions by individuals, not in government intervention.

Today, many people believe that governments should determine the price or supply of goods in the market.

However, this is wrong; in reality, government intervention creates confusion in the functioning of the market.

This is because when the government intervenes in the market, it distorts the signals that tell consumers the true value of a good or service.

For example, during gasoline shortages in the 1970s, the government limited the price that gas stations could charge to keep gas affordable. The direct result of this was a flood of people buying gas at the same time, leading to increased demand and further shortages. Because the price did not rise naturally in response to the shortage, as it would have done in a free market, consumers did not choose to conserve or find alternatives to gasoline.

Government action therefore exacerbated the crisis.

Without the proper price transmitting information to consumers, they are unable to know how to spend their money in the most efficient ways.

So although it might seem strange, the best way to ensure that the market works effectively is to leave it alone. This way, the market is left to individuals voluntarily pursuing their own self-interests. Only by making individual consumers the main actors in the market will the proper value of goods and services, based on their demand and supply, be transmitted.

One of the most well-known examples of such voluntary action actually comes from outside the economic market: the development of language. This developed from the bottom up with no central control. People cooperated with each other because it was in the interest of the individual as well as the group to share and create common communication.

When people freely traded words, it benefited both parties – no control or planning by a central authority was needed.

Economic control by governments over individuals erodes personal freedom.

When governments attempt to control parts of the economy, it often comes from a well-meaning assumption that they can level the economic playing field, making society fairer.

However, by controlling the economy, the government are in effect merely controlling the people who operate within it. And as the ability to choose how you spend your own money is essential to human freedom, government intervention actually leads to unfairer societies.

The Great Depression was caused by the very institution created to prevent it: the Federal Reserve.

By the early twentieth century, large banks in the United States developed a system by which they could limit the damage and destruction caused by banking crises.

The system worked liked this: when the economy started to waver, consumers would rush to withdraw their money from banks, causing a panic and furthering the crisis. In response, healthy banks would band together to give loans to unstable ones and limit the amount of cash that was available for depositors. Though this strategy did have small negative effects on workers and businesses, it worked efficiently to prevent bank runs, and the typical crisis lasted only a few months.

Inflation is a direct result of government manipulation of the economy and is a hidden tax on the population.

Inflation occurs when the quantity of money rises more rapidly than the amount of goods and services available. When the total amount of money increases, it creates a greater demand for goods. And if the amount of goods does not increase, the only way to deal with demand is to increase prices.

The worst effect of inflation is that it is a hidden tax on individuals. For example, if you save $100 in the bank, hoping to spend it on $100 worth of goods, and the rate of inflation is 3 percent, then after one year it would cost you $103 to purchase the same amount of goods. You have effectively paid a 3 percent tax on holding the money.

The modern welfare state is inefficient and routinely hurts the poor it was designed to help.

Although the modern welfare state provides benefits for the poor and underprivileged, it fails to provide the most efficient assistance. This is because, despite the good intentions of helping the poor, when government bureaucrats take control of the purse strings, spending spirals out of control.

When money is given to bureaucrats to spend, it changes their behavior. They are spending money that’s not theirs, on people other than themselves. This destroys the incentive to get the most value for the fewest dollars. In contrast, when individuals spend their own money, they have a natural incentive to get the best goods or services at the best price, even if their spending is for charity.

Our education system has deteriorated as local and parental control has been replaced by federal bureaucrats.

For the past few decades, public schools have declined in quality as costs have risen dramatically. The main reason for the drop in quality is that control of education has been taken away from local communities and centralized in Washington DC.

In the early 1800s, although school was neither compulsory nor free, it was nearly universal. Yet, in the 1840s, a movement was created not by parents but by teachers and government officials to replace the diverse system of private schools with free schools. Although they argued that government-run schools were in the “public interest,” they knew that regulation would grant them higher pay, better job security, and a greater degree of control over the students and parents.

The government’s desire to protect consumers impedes economic growth and causes prices to rise.

The government often argues that if sellers are left to act via their own self interest they will deceive customers by overcharging them or selling them shoddy products. Governments therefore promote the implementation of rules and regulations to “protect” the consumer. Yet this often has the opposite effect: worse conditions for consumers.

Attempts to “protect the consumer” are inherently anti-growth, because complying with increasingly complex government regulations imposes heavy costs on industries, and these costs are passed on to the consumer. The rising cost of goods results in periods of slow growth, where unemployment rises and wages stagnate.

Attempting to protect workers interferes with the natural protection provided by the free market.

In the past two centuries, workers in economically advanced societies have seen their conditions improve drastically. But the government and labor unions, despite their rhetoric, are not the reason for this development.

In fact, counter to their mission to keep workers gainfully employed, unions themselves have an adverse effect on unemployment.

We can regain our freedom by limiting the power of government and returning control to the people.

The power and size of the government has continued to grow over time and has led to control over many aspects of our lives.

Unfortunately, increasing the size of the government has led to spiralling costs and less efficient spending. For example, in Washington DC, government employees are spending taxpayer money devising ways to get us to quit smoking, while on the other side of town, different government employees are spending taxpayer money to subsidize tobacco farmers. Unbelievably, we are paying huge amounts for people to write laws that effectively cancel each other out.

Final Summary

The key message of this book is:

Economic freedom is essential to personal freedom. Government attempts to control individuals through economic commands actually ends up hurting individuals and taking away their all important freedom of choice.

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What is Free to Choose about?

Free to Choose (1980) explores the relationship between freedom and the choices an individual is allowed to make in regards to the economy. Friedman reveals to us that economic freedom is an essential part of liberty. He details the myriad ways in which government regulations and interventions chip away at our fundamental right to make decisions in our own self-interest.

Who should read Free to Choose?

Anyone wanting to learn about the government’s role in the economy
Anyone interested in exploring the benefits of economic freedom
Anyone interested in learning more about how free markets work

About the Author

Milton Friedman won the Nobel Prize for economics in 1976. He holds a PhD from Columbia University and was an economic advisor to Ronald Reagan in the 1980s. He has written over 11 books about economics and individual freedom.

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